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Q2 gold demand of 953.4t was 10% lower than 2016, while H1 demand slowed 14% to 2,003.8t.
Year-on-year comparisons suffer due to the record ETF inflows in 2016: demand from this sector slowed dramatically after last year’s H1 surge. Net central bank purchases of 176.7t were also slightly lower in the first half (-3%). Bar and coin investment was contrastingly positive, as was jewellery demand, although the latter remains weak in a long-term context. Technology demand also made modest gains.

The gold market is broad and complex, so producing statistics on demand and supply is challenging. But having such statistics is crucial to understanding the fundamentals of the market. The World Gold Council overcomes the complexity to produce a robust, comprehensive and well-researched series of global gold demand and supply data. We publish these data and supporting commentary in our quarterly Gold Demand Trends report.

On 1st July, India’s labyrinth of taxes will be replaced with a simple, nationwide Goods & Services Tax (GST). This is the biggest fiscal reform since India’s liberalisation in the early 1990s. While gold consumers will face a slightly higher tax rate, and the industry will go through a period of adjustment, we see the net impact on the gold industry as being positive. The gold supply chain should become more transparent and efficient, and the tax reform can boost economic growth, which we see as supporting gold demand.

Monetary authorities hold gold in the performance of their official functions, typically as part of the country’s official reserves. This functional purpose differs from the objectives of other entities who hold gold. Monetary authorities also commonly hold gold in much larger quantities than other entities. General purpose financial reporting frameworks lack appropriate guidance on accounting for gold, in particular for the gold classified as monetary gold, held by monetary authorities.

A barrage of policy initiatives aimed at purging India of black money and instilling greater transparency rocked India’s economy last year, including its gold market. The most dramatic was the radical decision to demonetise over 15 trillion rupees, around US$220bn. Other policies – such as the re-introduction of excise duty – affected the gold market, too. And the forthcoming Goods & Service Tax (GST) will change the shape of the industry. India’s gold market faces some short-term headwinds. But looking ahead, these policies may deliver a stronger economy and a more transparent gold industry, underpinning gold demand, which we expect to be between 650-750t in 2017.

2016 full-year gold demand gained 2% to reach a 3-year high of 4,308.7t. Annual inflows into ETFs reached 531.9t, the second highest on record. Declines in jewellery and central bank purchases offset this growth. Annual bar and coin demand was broadly stable at 1,029.2t, helped by a Q4 surge.

In 2015 India was the world’s fast growing economy; in recent years millions have been lifted out of poverty and India’s middle class has swelled. This is important because our econometric analysis indicates income growth drives gold demand. But India’s relationship with gold goes beyond income growth: gold is intertwined with India’s way of life. And as we look ahead, India’s gold market will evolve.